Fighting the last war on trade

Once again, trade is in the headlines. As the resident trade hawk on this blog, I cherish the unexpected opportunity to defend the principles of free trade that this presidential campaign season has repeatedly generated.

The economic argument in favor of free trade centers on efficiencies gained through specialization, not on the opportunity for increased political leverage that can be brought to bear on trading partners. Yet, many of trade's harshest critics insist on linking the two. Why? Many of these same critics howl in protest - and rightly so, I think - at the hawkish promotion of democracy through military intervention that has characterized the last several years of U.S. foreign policy. Violence aside, both approaches represent a degree of unwanted meddling in the sovereign affairs of another nation. Both approaches are intended to bring about a positive change in the lives of ordinary citizens. There is an argument to be made that the best thing you can do to help poor people living in less-than-open socities is to trade with them. But it's an economic argument and, therefore, destined to be misunderstood, discounted as a tool of commercial interests or, worse, manipulated to reach an opposite conclusion.

The promise of freer trade can be a useful carrot in a nation's foreign policy toolbox, I'm not denying that. Market access and closer political ties are often strong incentives for targeted domestic reforms in areas such as labor rights, environmental stewardship and civil liberties. Yet, the economic argument in favor of free trade says nothing about these effects. They have been linked to trade over the years by political actors and used to demonize what is essentially a positive aspect of a nation's development: openness.

I am tempted to reprint Robert J. Samuelson's entire column from today's Washington Post. I won't. But the following excerpt makes many of my points for me. Quite frankly, I wish I had written it myself.

...[I]t's politically convenient to oppose the [Colombian free] trade agreement because the popular imagery is that trade destroys U.S. jobs. The loss of almost 4 million U.S. manufacturing jobs since 1998 seems easy to explain by cheap imports or the flight of plants to Mexico, China and other poorer countries. The truth is murkier: Although this has occurred, job losses also stem from greater efficiency (fewer workers producing more goods) and slumping domestic demand (for communications equipment and computers after the dot-com bust and for housing materials and vehicles now). Nor has falling factory employment crippled overall U.S. job creation.

Look at the numbers. From 1998 to 2007, total non-farm payroll employment rose 12 million, and unemployment averaged only 4.9 percent -- despite the 4 million lost factory jobs. In that period, U.S. manufacturing output rose 22 percent.

No matter. Globalization and trade have become lightning rods for myriad grievances (job insecurity, wage inequality, eroding fringe benefits). But even if trade caused all the factory job loss, its impact is shifting. The dollar's dramatic depreciation (down an inflation-adjusted 20 percent since early 2003 against a basket of currencies) has enhanced the competitiveness of U.S. exports. Their growth now looms as a major source of job creation and economic expansion.

You can read Samuelson's whole column here.

Photo by vlauria.